Does political instability lead to higher inflation?: a panel data analysis, Issues 2005-2049
International Monetary Fund, Mar 1, 2005 - Business & Economics - 15 pages
Economists generally accept the proposition that high inflation rates generate inefficiencies that reduce society's welfare and economic growth. However, determining the causes of the worldwide diversity of inflationary experiences is an important challenge not yet satisfactorily confronted by the profession. Based on a dataset covering around 100 countries for the period 1960-99 and using modern panel data econometric techniques to control for endogeneity, this paper shows that a higher degree of political instability is associated with higher inflation. The paper also draws relevant policy implications for the optimal design of inflation-stabilization programs and of the institutions favorable to price stability.
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50 percent accounting for inflation agriculture in percent authors upon request b=5 percent Cabinet changes inflation change in reserve CNTS Column 5 reports Cukierman dataset dependent variable determinants of inflation dummy variable dynamic panel data econometric economic determinants economic freedom economic variables Edwards empirical models endogeneity explanatory variables freedom and democracy GDP per capita Government crises inflation Growth of oil growth of real higher inflation higher seigniorage index of economic inflation levels inflation rate inflation tax instability on inflation Internet investigate the main lagged first difference lead to higher levels equation Log Inflation M2 growth model of Column null hypothesis number of cabinet Number of countries Number of observations Optimal Taxation panel data models percent Column percent of GDP political and institutional Polity IV real GDP reports the results reserve money results of estimations statistically significant System-GMM estimations Tabellini 1992 trade in percent treasury bill rate U.S. treasury bill